Excel Currencies Blog

Huge concerns over the economic outlook facing the UK after the latest inflation figures surprise..

For the second consecutive month, UK inflation has come in well above consensus. 8.7% was higher than the expected 8.4% with the all-important core inflation figure looking concerning at 7.1% as opposed to 6.8%. Over the past 12-months, a higher inflation number has meant a stronger related currency as it meant interest rates would have to rise. However, things look a bit different this time round..

The UK faces a really unique inflation problem that the BoE have yet to figure out. Many economists warned that by being in the slow lane early on with hiking interest rates, the BoE could be allowing inflation to become higher for longer, as opposed to the Fed who look to have played it right. The ECB took far too long to act, but as soon as they got going, they were much more aggressive than the BoE and look to have eventually got their predicament right too. 

US inflation stands at 4.1%, the Euro-Zone is at 6.1% with the UK at 8.7%. All three have the same inflation target of 2% by year-end. Some members of the MPC wanted to go hard and fast with interest rates, which now looks obviously like the right call and now it's over to the BoE to confirm they got it wrong and to raise rates by 50bp tomorrow and not 25bp.

Whatever the call, 0.5%-1%+ volatility will almost certainly happen in the build up, on release of the figure and from the meeting after. GBP has lost nearly 1% across the board already today as the inflation number heaps more pressure on borrowers and households and lengthens the time the economy will suffer on growth. Also beware that the Pound has fallen 75% of the time on a BoE interest rate decision day, so brace yourselves..